21 November 2022


High Court of Delhi

Shapoorji Pallonji & Co. Pvt. Ltd. Vs. The Indure Private Limited and Ors.




Invocation of a bank guarantee cannot be injuncted merely on ground that disputes are pending between the parties

The Petitioner has filed the present petition under Section 9 of the Arbitration and Conciliation Act, 1996 ( A&C Act), praying that direction be issued to Respondent no. 1 to return the original Advance cum Performance Bank Guarantee dated 4th February, 2010 ("the PBG") as extended from time to time. The Petitioner also seeks an order restraining Indure from invoking and encashing the said bank guarantee. It is further prayed that, Respondent no. 2 (Standard Chartered Bank) be restrained from acting on any letter seeking extension or encashing the PBG.

There is no dispute that, the PBG is an unconditional bank guarantee. Thus, the principal question to be examined in the present case is whether the order interdicting encashment of an unconditional bank guarantee is warranted in the facts and circumstances of present case.

The law with regard to interdicting unconditional bank guarantees is well settled. A bank guarantee is a separate contract and is required to be performed on its own terms. An injunction restraining the encashment of a bank guarantee can be passed in exceptional cases of egregious fraud, irretrievable injustice and considering special equities.

Plainly, invocation of a bank guarantee cannot be injuncted merely on the ground that disputes are pending between the parties. In present case, none of the above grounds for interjecting the Bank Guarantee are established. There is no allegation of egregious fraud much less the fraud that vitiates the underlying transaction. An order restraining the encashment of the PBG cannot be granted.

The Petitioner also prays that an order be passed restraining the Respondent from transferring, alienating or dealing with, creating third party rights in any manner or encumbering its assets till such time, Indure does not discharge its entire liability. It is averred that, Indure may not be in a position to repay any of its debts considering its financial condition. However, it is seen that the necessary pleadings required for seeking an order in the nature of attachment before judgment, as contemplated under Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908, (CPC) are absent. Thus, insofar as the aforesaid prayer is concerned, present Court grants liberty to the Petitioner to approach the Arbitral Tribunal. The petition is disposed of.

Tags : Bank guarantee Encashment Injunction

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